Aleafia Health ALEAF stock is taking a slightly different approach to cannabis. And, I wanted to highlight Aleafia Health as one of your cannabis investments in your portfolio. Is ALEAF stock a good investment depends on your objectives. For me, I get what they are doing and I could see the potential opportunity. But, I will pass for now… and, for many reasons.
Aleafia Health is both a cannabis grower & processor and, also they have clinics. Is this working? It may be a little too early to tell for now. There are some metrics that show this could work. But, I do not see how a company scales up to mass levels with clinics. It is one thing to open dispensaries and sell medical cannabis. But, clinics require doctors that are going to specialize in medications and writing prescriptions. So, cost structures are going to be different than other, similar companies.
Still, despite this, the big take-away for Aleafia Health is that they are getting absolutely crushed with their non-core business expenses. Aleafia had revenues of $6.5M for the quarter but paid a whopping $56M in non-core expenses. On the one hand, these are devastating costs to a company still attempting to achieve EBITDA profitability. On the other hand, these costs are one-offs that will dissipate as the company moves forward.
Whether this is a buying opportunity for someone looking to buy on the dips, is up to that person. For me, investing is an opportunity. And, investing in a company that is behind means you are foregoing the opportunity to invest in another company that may be further ahead. In economic terms, we call that an opportunity cost. I will forego jumping in to ALEAF stock for myself.
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Aleafia Health Financial Data
Here is a breakdown of Aleafia Health financial data. To start, one of the things I do not talk too much about is both Other/Non-Operating Income/Expenses & Unusual Income/Expenses. These two are largely the same and show up in the Continuing Costs of any one company’s financial data.
This is where Aleafia Health’s woes really are stacked. While gross margins are low – negative, actually – other costs are crushing the financials. Worse, there were restatements with financials and this really did a number on any previous analysis. If you look at the financial data at the very bottom of this analysis, you can see the big negative numbers.
Aleafia Health Gross Profits
Revenues are not increasing as would be needed. There was a revenue peak of some $11M about four quarters ago. Then, subsequent to a major drop of ~50%, revenues have not cleared this high-water mark. In an era where we should be optimizing our opportunity, finding companies that are increasing their revenue quarterly should be goal #1. When I see flat-like revenue growth such as this, I see potentially other companies that will continually outperform Aleafia Health.
Ultimately, this is a kind of race. The race is an interesting race. This race involves both success and momentum, both of which feed on each other. If a company is achieving success via continuously increasing revenue, and in-kind margin growth, more and more individuals will show up to acquire the stock. As for Aleafia Health, where there is no revenue growth, investing here would be a missed opportunity. In economics, we call this an “opportunity cost”, investing in one company versus not investing in another.
Aleafia Health Operating Profits
Whereas gross margins, as viewed in the previous section, are negative, operating costs are within striking distance of hitting solid performance numbers. This is one of the variables I found positive. With operating costs contained on a relative basis versus revenue, when Aleafia Health starts to ramp up revenues, should they be able to, Aleafia Health will be in a good position with operating profits.
This could be a good justification for increasing operating costs in the future inside SG&A. SG&A is Sales, General, & Administrative. If Aleafia could increase sales dollars and that translates into increased revenues, that investment would pay off.
Having operating costs at such a low number relative to revenue is positive and could lead to better performance.
Aleafia Health EBITDA & Net Profits
Revenues need to increase significantly before Aleafia Health can achieve EBITDA profitability. Gross margins are negative. And, there is no way forward to EBITDA profitability until revenues ramp up to achieve economies of scale. But, operating costs are within striking distance which, that will help considerably.
Aleafia Health Cash On Hand
When you look at the totality of things, the hit from non-core costs (repeatedly), and then you look at cash on hand versus debt, this looks like a difficult position to be in for Aleafia Health. Cash is dwindling. And, without having achieved economies of scale from revenues, the future looks like a bleak proposition for Aleafia Health.
Aleafia Health Total Equity
Simply put, there is dwindling cash, assets, and equity. Aleafia Health needs more working capital and, they need to improve in assets & equity while containing liabilities. Plus, if there are future non-core business costs that pop up from here, that will place more pressure on Aleafia Health’s future. The entire package looks to be a tough situation to proceed forward with.
Aleafia Health ALEAF Stock Forecast
As I will be doing on the website for all of the stocks I cover, I continually put together Discounted Cash Flow statements generated from Discounted Cash Flow Calculators. For your convenience, I have listed these all in a separate page: Most Undervalued Cannabis Stocks.
However, one of the precursors to me doing a DCF is achieving EBITDA profitability, or a roadmap to that. Aleafia is no where near that; I cannot do ALEAF Stock Forecast at this time.
Is Aleafia Health ALEAF Stock A Good Investment?
I think there is likely to be a complete reorganization of cash, assets, & debt, as well as likely shares being issued to raise cash. I do not see this as something I would want to step in front of at this time.
Aleafia Health Stock Financial Data
Aleafia Financial ALEAF Stock Financial Statements
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A recent Update frpom ALEAF >> Aleafia Health Continues to Gain Share in Adult Use Cannabis Market and Drive International Sales Growth
Aleafia Health Continues to Gain Share in Adult Use Cannabis Market and Drive International Sales Growth
Reached new record market share overall adult use market share of 2.06% in February 2022, advancing 33% from 1.54% in November 2021(1)
Continued ascent in overall market share rankings, up two more notches to 13th in February 2022 from 15th in November 2021
On the pathway towards a top 10 market share position by the end of 2022
Received first $1 million purchase order
Secured seven new listings in Ontario and six in Alberta to enter market in the Spring
International POs in hand already exceed entire second half of 2021
Headed towards break-even Adjusted EBITDA profitability in second half of 2022
TORONTO, March 25, 2022 – Aleafia Health Inc. (TSX: AH, OTCQX: ALEAF) (“Aleafia Health” or the “Company”) is pleased to provide a corporate update demonstrating that the Company continues to deliver market share advances by focusing on the highest revenue generating dried flower, pre-roll, and vape product categories. Consumers continue to express strong interest in its Sunday Market House of Brands adult-use cannabis products in these categories.
“In February, the Company reported that it had changed the business’ strategy towards being a branded cannabis products provider, with branded cannabis representing 80% of total net revenue in 2021 compared to 33% in 2020,” said Aleafia Health CEO Tricia Symmes. “Now we continue to deliver on that strategy, with record growth in market share in February and unique product introductions that demonstrate the success of our Sunday Market House of Brands, setting the stage for future success in the highest volume cannabis categories.”
In February, Aleafia Health achieved record 2.06% adult use market share in four major markets, advancing 33% from 1.54% in November 2021. In the same time frame, market share in flower rose to 1.86% from 1.47%, pre-rolls rose to 2.62% from 2.09%, vapes rose to 2.18% from 0.92%, and oil rose to 4.01% from 2.68%.(1) These advances in market share would have been stronger absent temporary capacity limitations at the Company’s Grimsby greenhouse facility.
Among Canadian LPs, in its four major markets, the Company ranked in February 2022(1):
○ 13th overall, up from 30th in February 2021
○ 11th in pre-rolls, up from 37th in February 2021
○ 11th in vapes, up from 18th in February 2021
This 17-position overall market share rank increase, from 30th to 13th, demonstrates the success of the Sunday Market House of Brands. This growth was driven by strong retail pull-through of the Divvy product portfolio, Sunday Market’s everyday brand. The Company recently shipped its first flower SKUs to British Columbia, including 14g bags of Divvy Sour Kush and Flo, and 3.5g bags of Divvy Black Widow CBD, the Company’s spicy balanced flower offering. Divvy has consistently been one of the top 12 most searched brands on OCS.ca since its first product launch in April 2021. In addition, the Company’s Kin Slips discrete sublingual strip brand ranks #1 in Ontario.
As another indicator of consumer demand and sales momentum for adult use products, the Company for the first time has received a $1 million purchase order from Ontario, covering a wide range of products. In addition, Aleafia Health has secured purchase orders in 2022 year-to-date from Australia and Europe that exceed 2021 second half sales to international markets. Aleafia continues to target international sales as a future growth area, benefitting from its strong relationships with overseas distributors.
“Many of the Company’s new listings are line extensions, which speak volumes about the confidence the OCS and AGLC have in the Company, as those provincial authorities usually list line extensions only if predecessor products have been successful, which ours clearly were.”
“Divvy, the Company’s well-established everyday brand is focused on an exceptional value proposition, with a full suite of dried flower, pre-rolls, vapes and cannabis derivative products, benefitting from supply agreements with Ontario, Alberta, Saskatchewan, British Columbia,” Symmes said. “The Company has more than 100 provincial listings and seven new SKUs in Ontario and six in Alberta this Spring. That continued revenue velocity, in combination with the continued cost containment and rationalization initiatives underway, is helping drive us towards achieving breakeven Adjusted EBITDA(2) profitability in the second half of 2022.”
1. Based on HiFyre data for Ontario, Alberta, British Columbia and Saskatchewan markets.
2. Please see “Adjusted EBITDA” section of the Company’s MD&A dated February 14, 2022 for reconciliation to IFRS equivalent.
For Investor & Media Relations:
Matthew Sale, CFO
LEARN MORE: http://www.AleafiaHealth.com
I Personally have a medium Position in ALEAF W/ 1380 shares, Bought mostly Below 0.20 and as Low as 0.095